As an RBI report reveals, more than 510 of the 854 tonnes held in reserve are now in India, with most of the remainder held by the Bank of England and the Bank for International Settlements.

At the end of 2021-22, only 39% of our 760-ton stack was in national custody. Today, it’s 60%. Not only is our central bank buying more, but it seems eager to actually own securities.

As the global price of gold has soared over the past year, a rise that has generated a buzz among retail buyers, the increase in tonnage appears to be a worthy endeavor. But should households follow suit by locking more of these shiny objects in their own lockers?

Note that the motivations of central banks and retail investors differ. In many countries, the former have good reason to diversify their foreign exchange reserves, of which gold remains a part, even if it is considered a relic of the days when bullion paid commercial taxes and guaranteed currencies .

After the war in Ukraine led the United States and its allies to freeze Russian dollar and euro assets in 2022, many central banks sought to protect themselves against the risk of such containment measures. China has notably invested in gold, as have other countries. In fact, group purchases partly explain the price rise.

After all, it is a classic hedge not only against inflation, but also against any uncertainty that might haunt the global financial order: if instability arose, gold would not only survive, but would gain as others accumulate there as a store of value.

With the geopolitical situation having deteriorated sharply after the Covid pandemic, robust demand was a given. Although gold offers no investment returns or periodic returns, it provides an alternative to U.S. Treasuries for those seeking safety.

Historical trends show that gold generally rises as bond yields fall, and vice versa, since investors tend to switch. Gold’s recent gains, however, have defied this trend.

Since inflation has eased globally, unease over key financial assumptions appears to be the main driver of prices. While the RBI’s gold purchases predate the West’s freezing of Russian assets (and have been decidedly stable), bringing pieces home is a more recent move.

So, should other investors in India do the same? Gold coins are available with the swipe of a thumb on fast delivery platforms, delivered to your doorstep within minutes. The demand for jewelry has always been high, especially during festive and wedding periods.

Although the luster of these acquisitions may satisfy psychological needs, a potential buyer seeking appreciation in value does not need gold in physical form to achieve this goal.

Just keeping it safe is a burden, not to mention the casting costs, GST levies and purity checks often required for a gold sale (or loan).

In the era of demat assets, there are better ways to bet on the metal. In terms of liquidity, yield and ease of ownership, these investors would be better served by gold exchange-traded funds (ETFs), which can be bought and sold like stocks.

For longer-term investors, an attractive option was sovereign gold bonds – offering 2.5% annual interest plus a tax holiday on their redemption value at the end of their eight-year term – but issues of these bonds seem to have dried up.

However, if exposure to gold is the fundamental objective, then it is better to opt for dematerialized options. Whether gold will rise much more is another matter.